If you don't want the money you've tied up in property to fall into the wrong
hands, there are legal decisions you need to make early on

From King Lear to Downton Abbey and Bleak House to War and Peace, there is nothing new about financial feuds within families.

But in today’s Britain, warn lawyers, the opportunities for fallouts are greater than ever.

That is because soaring house prices and rents are giving rise to increasingly elaborate financial arrangements between family members.

In order for a younger family member to buy a home, for example, a parent or sibling may well give or lend a deposit. The difficulty faced by younger people to obtain mortgages, following the financial crisis, has accelerated the trend.

By early 2015 two in three first-time buyers had help from their parents, according to lenders’ data.

Sometimes a parent’s property or income is used to guarantee a mortgage, adding to the tangle.

Whatever the detail of the transaction, solicitors say, there is the potential for them to sour.

“You wouldn’t think of coming to an arrangement with a non-family member without their being a contract,” said Sarah McLoughlin, a property lawyer with 23 years’ experience. “And yet when it’s a family member, the feeling is that ‘everything will be alright’.

“But families have a tendency to not be very nice to one another, in my experience.”

Common causes of dispute

Up to four people can be on a Land Registry title, but many more than that could have contributed to a deposit or helped pay off a mortgage.

They can be left in a difficult legal position when the property is sold. But with values high and rising, all parties involved are increasingly likely to bring a claim, said Ms McLoughlin.

Earlier this month a London court ruled on an acrimonious case where a mother sought to evict her daughter from a one-bed flat worth £1m. The daughter claimed the flat had been given to her.

Ann Hermsen-Wilkinson, 72, won the case against Caroline Hermson, her daughter, aged 45, with the judge issuing a possession order.

Ms McLoughlin, a senior associate at BP Collins, who acted for Mrs Hermsen-Wilkinson, said the same situations involving trusting family members occur again and again.

“Generally parents want to help their children, and they don’t think that it might not work out like that,” Ms McLoughlin said.

Difficulties also arise where one family member helps pay another’s mortgage, without being named on the deeds. Here the likely difficulty would be in proving the financial contribution.

Another common situation arises where people live rent-free in a property belonging to other family members, said Ms McLoughlin.

The problems of marriage and divorce: ‘how can I stop my child’s spouse getting their hands on my money?’

The involvement of “new” family members – such as in-laws, step-parents or step-children – can intensify the dispute or trigger new disagreements.

One of the most commonly-asked questions, according to family solicitors, is how parents who help their children financially can ring-fence assets to prevent them falling into the control of their child’s partner or spouse.

Here, the type of contract agreed when they buy the property is vital, says Jeremy Raj, partner at Wedlake Bell.

A “joint tenancy” can become a problem where other people are involved financially. It means if one party dies, the other automatically inherits the whole property, including any share others may have contributed.

A “tenancy-in-common” means the couple each have a percentage share of the property, and if one dies, their will determines who gets what.

This arrangement also protects their share if the relationship breaks down or when the property is sold.

“It’s as simple as ticking the right box when you buy the property. Many people tick the wrong box or don’t even ask the other people who are involved,” Mr Raj said.

Children marrying can also protect parents’ interests through pre-nuptial agreements, laying out what share of any property belongs to other parties.

If these arrangements were not undertaken when a property was bought, it’s not too late, said Mr Raj.

“It’s easy to change a joint tenancy into a tenancy-in-common. You can do any of these things at a later date - so you can do a post-nup agreement, or a declaration of trust after the property is bought.”

Reaching agreements

Many families would baulk at having frank conversation about the need to ring-fence assets or plan for the eventuality of a divorce or other fall-out.

But is is best to deal with the legalities while everyone is still on good terms, Ms McLoughlin advised.

A “declaration of trust” sets out who owns what proportion of a property and what should happen if it is sold. It can also cover conditions of a loan: for example, the lender can specify that they want a share of the income if a property is subsequently let, or outline what should happen if the property loses its value.

Lenders can outline a repayment programme for any loan and set out conditions in which it should be repaid in full.

Such arrangements could protect parents or other older family members where a need for funds could emerge in later life – either to pay for care or supplement a dwindling pension, for example.

People who contribute to mortgage repayments on a property can use such a trust to secure an interest in the property as a result.

Can I set up a ‘declaration of trust’ on my own?

A private document or letter setting out what various parties agree to at the outset is better than nothing, and could prove a great help if disputes subsequently arise.

But, unsurprisingly, lawyers recommend a more formal process.

“It’s simple to sort out, but it’s a bit like a pre-nup,” said Ms McLoughlin. “You have to think of the problems that might occur to try and account for them on the way in, which can be difficult,”

You can ask the Land Registry to record that the property is being held “subject to a declaration of trust”.

Ensure everyone involved has a copy of the relevant documents. Ms McLoughlin says it’s not uncommon for documents to “mysteriously disappear” when they’re not in people’s interests.

“People do destroy documents. When families fall out, they can lose all their scruples.”

She cites another upcoming case involving a dispute between siblings, one of whom who has loaned money for a property to another who is now disputing the declaration of trust.

“A good document should clearly lay out the purpose of any money being loaned.,” she advised.

“A ‘he said, she said’ situation is disastrous in terms of litigation – because where’s the middle ground?”

Contemporaneous emails or bank statements can help where a dispute requires settling.

In another case of family in-fighting, a young woman who claimed she paid her parents’ mortgage was able to show regular payments leaving her account, making her a more credible witness.

“Going to court, in my book, is losing, partly because it costs so much money, but also because you’re letting someone else decide.”

The cost of engaging a solicitor to draw up the declaration of trust depends on the amount of work involved.

Mr Raj said in most cases the work would be limited to a few hours and cost hundreds of pounds.